Investor Manifesto: Is Nausea the Key to Success?

Last Updated Nov 16, 2009 4:24 PM EST

Bill Bernstein is the anti-Cramer. Utterly incapable of stock hawking or shtick, he is on my short list of voices individual investors can truly profit from listening to.

Bill who, you say? Bernstein is a neurologist who has trained his formidable intellect on investing. With a money management firm and online journal named Efficient Frontier he is resolutely in the camp of: diversify, stick with index funds, keep costs low. He spent two books spelling out his investing philosophy,Investor Manifesto: Buy Low Sell High but as he is quick to point out, both The Intelligent Asset AllocatorThe Four Pillars of Investing and weren't exactly easy mainstream reads.

When the financial crisis struck last year Bernstein decided to write a book for the rest of us. The result is his just-published The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between. (You can download a book excerpt for free.) There's nothing dumbed-down here; rather Bill has distilled his thinking into ridiculously accessible prose.

As far as recent manifestos go, it's hard to top Michael Pollan's foodie call to action: Eat food. Not too much. Mostly plants. Bernstein nonetheless cuts to the investor's challenge in three quick directives:

First, to not be too greedy; second, to diversify as widely as possible; and third, to always be wary of the investment industry.


The Strawberry Corollary
Okay, so what could strawberries possibly have to do with being able to retire comfortably? Here's Bernstein's take on the buy low challenge:

For some reason, we do not purchase securities in the same way we buy other things. When the price of strawberries rises to $8 per pound in January, we forego them, and when they are virtually being given away at the farmers' market in June, we load up. Not so with stocks: The higher the price, the more attractive they seem; and the lower they have fallen, the more we are repulsed.


But Bernstein suggests we learn to embrace that repulsion, as do successful value investors:

--most grizzled veterans will tell you that the best purchases are often made when they feel they are about to throw up.


Those are just two quick snapshots of Bernstein's take on building a sound retirement strategy. Other topics he weighs in on: emerging markets (don't mistake fast-growing economies for good investments), the enemy within (how emotions manage to screw up our retirement security) and fixed annuities (be careful betting on an insurance company right about now.)

A Modest Proposal In an admission that the publisher shockingly didn't see fit to plaster on the book cover Bernstein asserts:

"--if you follow the advice in this book, I can guarantee you that you will not get fabulously wealthy."


Not exactly CNBC material, eh? "The name of the game is not to get rich, but rather to avoid dying poor," says Bernstein. His manifesto goes a long way toward explaining how to pull that off.

Strawberry photo courtesy of Flickr user savagecat, CC 2.0
  • Carla Fried

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